Mahmoud Ahmadinejad the baddie in a film row

Mahmoud Ahmadinejad, the Iranian president, has been attacked by an unlikely alliance of Islamic fundamentalists and film directors for agreeing to a government-funded biopic of the country's first female motor racing champion.

The permit for the film about Laleh Seddigh, who earned worldwide fame by beating male competitors to become Iran's national rally champion in 2005, is due to be issued next week.

It follows a series of meetings between Ahmadinejad and Essy Niknejad, an Iranian-born film director based in the United States, during the Iranian leader's trip to New York for the UN General Assembly. They struck up a rapport after meeting at a function arranged between Ahmadinejad and Iranian "elites" in America, leading to the president approving a proposed screenplay.

Bosses in Iran's state-run cinema industry say the project, which has the working title Laleh, will counter negative Western stereotyping of the country as backward and its women as downtrodden.

Seddigh, 35, earned the nickname "the little Schumacher" after her success on the racetrack turned her into a symbol for the struggles of independent-minded women in Iran's male-dominated theocratic state. But hardliners say that her story amounts to a perversion of the Islamic republic's religious values and cinema directors question why a £262 million budget has been set aside when other films about the country's national and religious identity have been made for far less.

Hossein Shariatmadari, the editor-in-chief of Keyhan newspaper - widely thought to reflect the views of Ayatollah Ali Khamenei, Iran's supreme leader - called the film's storyline "a patent insult to Iranian Muslim women" that played into the West's hands.

"Is the symbol of Iranian Muslim women a girl who takes part in international rally races?" he wrote in a front-page editorial. "Is participation in rally racing really a sign of modernity? Aren't these symbols exactly the same ones that the US and its allies wish for Iran and didn't the Islamic revolution put an end to this wish? Why should we spend from the nation's pocket to fulfil the destructive patterns and gone-with-the-wind fantasies of the wild west?"

He also accused Niknejad of making "obscene sex films" in Hollywood, citing his role as co-executive producer of several episodes of The Red Shoe Diaries, an erotic drama screened by the US cable network, Showtime, in the 1990s.

Officials in Iran's Documentary and Experimental Film Centre, which will spearhead the production, have reportedly held talks with companies in Cannes and Canada about participating in the project. They say they have resisted pressure for Seddigh's role to be played by a Hollywood actress.